Circle of Competence Issue #37
Quote for the week: "Either write something worth reading or do something worth writing" - Benjamin Franklin
FOOD FOR THOUGHT
A Fool's Wisdom
Last Friday, I had the pleasure of meeting one of the founders of Motley Fool, David Gardner, after his speech at the Wilberforce Conference at UNC Chapel Hill. I wanted to share the main points of his talk on wisdom.
1. The joy of gain is infinitely greater than pain of loss over the long run. Your downside is only 1X, but your upside is unlimited (in life and in the markets). The rub is avoiding the -1X disasters and holding on long enough to experience the multibaggers.
2. Life is a cooperative game, not a competitive game. Over the long run it’s better to cooperate (and innovate) rather than compete (economically and socially and otherwise).
3. Judge yourself by your results and others by their intentions. Too often we judge ourselves by our intentions (not a high enough bar) and others merely by their results (judgmental and double standard).
4. Take the long view and be a rational optimist. The future belongs to those who can take lemons and turn it into lemonade.
5. Avoid the 'fool with a hammer' syndrome (i.e. everything looks like a nail to a fool with a hammer). Discernment for the right tool for your situation (e.g. when to leap with faith or hesitate with skepticism) is the beginning of wisdom.
This week I finally got around to reading Jeremy Grantham's 'The Race for Our Lives Revisited.' For starters, it is quite a dim outlook on our current situation. Food shortages, water shortages, intensified storms and floods, erosion of agricultural lands, population explosion, and the list continues. I am a natural skeptic when it comes to predicting the future and my skepticism is positively correlated with how far out the prediction extends (e.g. tomorrow vs. in 100 years) and how nonlinear a phenomenon tends to be. I tend to be more of a rational optimist (see above), viewing potential problems as opportunities rather than impending doomsday scenarios, but I welcome all views! (Note - my skepticism of 100 year models does not imply denial of scientific data, only skepticism of our ability to model exactly what will occur over the next century given the known data.)
From an investment perspective, Grantham makes an interesting point in the white paper that you would have performed just as well as the market if you had eliminated energy from your portfolio holdings over the long term. He points out that so many people aren't willing to invest 'ethically' because they claim it would hurt absolute performance, but the facts support just the opposite. Grantham goes on to show returns by hypothetically eliminating every other industry (one at a time) from a model portfolio and it turns out that eliminating each one doesn't hurt returns at all over the long run. As the saying goes, there are a thousand ways to skin a cat.
I also found the exponentially decreasing cost curves of wind energy, solar energy, and battery storage to be highly instructive. I have high hopes for these technologies to become the default within my lifetime. The rise of these alternatives is a great example of how many overestimated how long the market would take to produce cost-competitive alternative energy sources. Simply put, many didn't give enough credit to the power of exponential technological innovation. Compounding (or exponential decay in this case) is powerful force indeed.
Back in week 32, I discussed the psychology of buying a (personal) house, and the process by which many psychological biases can creep into the experience. This week, I'm happy to report, my wife and I closed on a property in Chapel Hill... so I can finally put my investor hat back on!
I have to give a shout out to Kitty & Bob Stockton at Re/Max Winning Edge Realty who did an absolutely superb job handling the transaction from start to finish. I have often read of how real estate brokerage is one of the last pieces of the industry to be truly automated and disrupted. I believe this is for good reason. While buying stocks and other financial instruments may be relatively simple with technology, buying physical property for residence is still a complicated private transaction that involves multiple parties, vendors, and negotiations. It is very important to have a professional help you navigate the process, especially if you are a first time buyer. Despite the fact that I am a licensed NC real estate broker, I still decided to work with Kitty & Bob because of their deep expertise in the Chapel Hill and Durham markets when it came to relationships, access to listings, and vendors. And they did not disappoint! They were prompt and professional, and I would recommend them to anyone in the market for a new home.
Have a great week!
DEPARTMENT OF GENERAL FINANCE
- Coffee Can Investing with Tom Gayner, Co-CEO of Markel
- Buffett's underated investment attribute: staying within his circle of competence (John Huber, Base Hit Investing)
- The quant frontier (Jamie Catherwood)
- Warren Buffett repurchases $900M in Berkshire Hathaway shares (WSJ)
- What's driving superstar companies, industries, and cities (Harvard Business Review)
- Graham and Doddsville fall 2018 edition
DEPARTMENT OF PODCASTS
- Robert Cialdini on the psychology of persuasion (Bloomberg Masters in Business)
- Ray Dalio discusses major financial debt crises (Bloomberg Masters in Business)
- How to live a longer, higher quality life w/ Dr. Peter Attia (Invest like the Best)
- Ryan Caldbeck on being a quant in the private markets (Invest like the Best)
- How to source off-market deals (The Alternative Investor)
- Lessons from Billionaire Mark Zuckerberg (The Investors Podcast)
- a16z podcast on automation + work, human + machine
DEPARTMENT OF TECHNOLOGY
- Jeremy Grantham's white paper on climate change
- The secret of eternal growth (Initiative for Free Trade)
- Walmart is testing a cashierless Sam's Club (CNN)
- Space elevators, anyone? (South China Morning Post)
DEPARTMENT OF STARTUPS
- Iron ox runs its farm entirely by robots (CNBC)
- The world's first humanless warehouse designed by Mujin (CNBC)
- Softbank leads investment of $400M in Chinese co Hellobike (Reuters)